Friday, February 17, 2017

"Frenzied Betting, Sleeping Market: Something Must Give in Oil"

From Bloomberg:

As hedge funds and money managers place record trades on a rally in
oil, the price itself has fallen asleep. Logic dictates that something
should give. Here are five charts examining the unprecedented
speculative build-up and what the market’s next turn might be.

1. Frenzied betting...
At the start of February, speculators were betting a net 865 million
barrels of oil across the market’s two global benchmarks that prices
would rise. As well as being a record, their bullish positioning
expanded by 78 percent since just before the Organization of Petroleum
Exporting Countries and 11 other producer nations pledged to cut global
crude supplies. Benchmark prices rose about 20 percent over the same
period.

2. ...sleeping market
Unfortunately for the bulls, the oil
market itself has fallen asleep after an initial surge. As Standard
Chartered analysts including Paul Horsnell pointed out this week, prices
have been stuck around a dollar a barrel above or below $55.50 since
mid-December. Meanwhile U.S. crude closed above $54 a barrel only once
since OPEC’s Nov. 30 meeting, despite crossing that price level 14
times. “If crude prices are to break out of their recent range in the
next few weeks, the risk is to the downside," JBC Energy GmbH in Vienna
said Thursday.

3. Spreads still show glut
The shortest-term oil prices show that an oversupply endures.
The nearest Brent and West Texas Intermediate contracts remain in a
structure known as contango, which typically occurs when there is too
much supply, depressing short-term prices....